Elements Behavioral Health – Seeks Additional $1.1mn in DIP Financing, Continued Access to Cash Collateral, Extension of DIP Facility Maturity Date

February 7, 2019 – The Debtors requested Court approval for supplemental debtor-in-possession (“DIP”) financing and continued access to cash collateral [Docket No. 754]. The Debtors explain that the need for additional financing results from “the complex regulatory and licensure approval process related to the Sale [of the Debtors assets to DIP lender Project Build Behavioral Health], as well as the administrative costs of administering the Chapter 11 Cases.” The Debtors further filed an approved budget as required pursuant to their DIP financing arrangements [Docket No. 755].

The financing motion explains, “Pursuant to the Motion, the Debtors seek authority to, among other things: obtain postpetition financing from the DIP Lender in the amount of $1,100,00.00; enter into the Second Amendment (as defined in the Motion); modify the Final DIP Orders; grant additional liens to the DIP Lender; continue to provide adequate assurance to the prepetition secured parties; and use Cash Collateral….By its terms, the DIP Credit Agreement will expire on February 8, 2019. The Final DIP Orders provided the Debtors with access to $29.9 million in postpetition funding. Due to the complex regulatory and licensure approval process related to the Sale, as well as the administrative costs of administering the Chapter 11 Cases, the Debtors require additional postpetition financing to fund the Chapter 11 Cases through their conclusion, including the Combined Plan and Disclosure Statement process contemplated by the Sale Order.

The Debtors have determined, in their sound business judgment, that additional postpetition financing in an amount up to $1,100,00.00 (the ‘Second Supplemental Financing’) is required to fund the Chapter 11 Cases through the closing of the approved Sale to PBBH and confirmation of the Combined Plan and Disclosure Statement.. To that end, the Debtors seek approval to enter the Second Amendment to the DIP Credit Agreement (the ‘Second Amendment’). The Second Amendment would also extend the Maturity Date to March 31, 2019, or the Effective Date (as defined in the Combined Plan and Disclosure Statement).

The Debtors are unable to sufficiently generate cash to operate their business or satisfy their obligations under, among other things, the Prepetition Secured Obligations. Given the Debtors’ current financial condition, financing arrangements, and capital structure, the Debtors have an immediate need to obtain the Second Supplemental Funding and to use Cash Collateral to permit the Debtors to, among other things, continue the orderly operation of their businesses, maximize and preserve their going concern value, make payroll and satisfy other working capital and general corporate purposes, and pay other costs, fees, and expenses associated with administration of the Chapter 11 Cases. In the absence of the authority of this Court to borrow under the Second Amendment and DIP Loan Documents and use Cash Collateral, the Debtors’ estates would suffer immediate and irreparable harm.

The motion continues, “The Debtors are unable to sufficiently generate cash to operate their business or satisfy their obligations under, among other things, the Prepetition Secured Obligations. Given the Debtors’ current financial condition, financing arrangements, and capital structure, the Debtors have an immediate need to obtain the Second Supplemental Funding and to use Cash Collateral to permit the Debtors to, among other things, continue the orderly operation of their businesses, maximize and preserve their going concern value, make payroll and satisfy other working capital and general corporate purposes, and pay other costs, fees, and expenses associated with administration of the Chapter 11 Cases. In the absence of the authority of this Court to borrow under the Second Amendment and DIP Loan Documents and use Cash Collateral, the Debtors’ estates would suffer immediate and irreparable harm.”